Many of us recovering from a financial setback in which bills went unpaid for an extended period of time wind up with accounts in collections. There are different approaches you can take to solve debt problems that result from a cash crunch. But there is another side to debts in collection – the credit crunch. While your credit score may not be the number one priority when you’re in the midst of dealing with a serious debt problem, you may eventually look to reestablish your credit again. And those collection accounts and debt collectors can stand in your way.

Once your bills reach the stage in which a collection agency or debt buyer has them, your credit report has likely already been damaged. And your credit score… well, let’s just say you’ve fallen and you can’t get up (for now). Going forward, however, the decisions you make about your debts today can help set you up for credit success tomorrow. So you may be having the same questions that I’ve been asked over the years by many people whose debts I’ve helped resolve in collection.

Here are 10 common questions about credit scores and debt collectors I receive consistently.

1. What should I do when I make a debt collector an offer to “pay for delete”?

Pay for delete is offering to pay a debt in full, or for less than what you owe, but only if the negative item is removed from your credit report. And pay for delete can backfire when you are trying to settle a debt for the best savings. By requesting the account be deleted, you are telegraphing that you have a credit goal the collection account is holding you back from. This can lead to debt collectors holding out for more money in any agreement you negotiate, and in some instances, not agreeing to any balance reduction at all. Pay for delete letters rarely work. In some inconsistent one-off events I have seen people succeed in getting medical bills and utility bills that had been sent to collections removed from their credit report. But success here is a long shot at best.

2. How much will my credit score increase if I pay off the debt collector?

Paying an older collection account does not increase your credit score by itself. When you pay a debt collector that is reporting to the bureaus, you can expect them to update their reporting to reflect that you no longer owe the debt. The fact that you have less debt overall can help your credit standing, but do not expect an immediate benefit to your credit score from settling up on past bills.

I should point out that someone who has, for example, one or two accounts in collections alongside 10 open and positive accounts on their credit report will see an improvement in their credit more quickly than someone with 10 negative items and only one or two positives.

VantageScore now offers a credit score that does not factor in paid collection accounts. While this is great news, this newer version of VantageScore has not been widely adopted yet. But I look forward to it gaining broad use, and I hope FICO comes around to offering similar scoring models in the future.

Free Credit Consultation - Call 844-346-3296

3. If a debt collector says they will mark my file as a “refusal to pay,” how badly does that hurt my credit?

None. Your credit report typically already shows late pays by the time a debt collector gets your account. Those late pays already reflect the “refusal” to pay, even if it is the result of your “inability to pay.” It is possible that a debt collector has a box to check, or the ability to make a notation, that equals a refusal to pay. But this is just an effective collection tactic. It does not change anything on your credit report.

4. How do I get a judgment removed from my credit report?

Courts do not send the record of judgment to the credit reporting agencies. But judgments are a matter of court record, which is public information. There are companies that specialize in gathering information from the courts, and typically send this type of data to the credit bureaus. In order to get a judgment removed from your credit, you would want to go to the source, which is the court record. There are sometimes viable ways to get a judgment set aside or vacated. You should consult with an attorney that specializes in debt collection defense about how this might work for you. It will cost money to take this approach, with no guarantee of success.

You can pay or settle judgment debt for less in order to get the court record updated to show the judgment has been satisfied. And judgment debt will typically fall off your credit report 7 years after the date it was entered in the court record.

5. Will settling or paying a collection account cause it to stay on my credit report for 7 more years?

In general, the statute of limitations for a negative item to remain on your credit report, such as unpaid credit card debt, is 7 years from the date your account was charged off. Paying off your old delinquent debt, or negotiating a lower payoff, whether all at once or over a period of months, does not add any time to how long it stays on your report. You should monitor your credit reports to be certain that any collection entry that appears, in addition to your original lenders reporting, ages off your credit at the same time as the original negative item.

An exception to this would be if you were sued and a judgment was entered in the public record. Judgments have their own fresh 7-year credit reporting shelf life.

Be sure not to confuse the statute of limitations for negative items to remain on your credit report with your state statute that limits how long you can legitimately be sued for collection.

6. Can I negotiate with my credit card bank, or start making payments again, and get them to remove a charge-off?

Once your lender charges off your debt as a loss, you typically cannot get that changed. You can certainly pay off the balance, or negotiate a lower payoff, and that can help you in your efforts to rebuild your credit over time.

7. Why is a debt collector reporting a different balance owed than my original creditor?

Depending on the agreement you have with your lender, interest can continue to accumulate on your debt while it remains unpaid. Unfortunately, it can be difficult to duplicate a debt collector’s interest calculations, making it tough to determine whether the balance and the added fees are accurate. Balance accuracy is a very real concern when you are dealing with debt collectors, especially when you are looking to resolve older debts. You can certainly take steps to validate amounts owed to a debt collector, but you should be cautious if you can still legitimately be sued and have no intention or ability to resolve the debt.

8. Why are there inquires from debt collectors on my credit report?

Your credit report contains useful information to a debt collector. Debt collectors monitor credit reporting activity and look for signals that would suggest a debt is more collectable. If you are paying other bills on time, have applied for new credit, or recently paid some other collection account – these are all key bits of data that could cause a debt collector to view you as more likely to pay.

Debt collectors pay the credit reporting agencies for access to this information, and are deemed to have a permissible purpose to make these inquiries, similar to lenders who are looking for new customers to solicit with their credit product.

Get Your Free Credit Score & Monitoring

9. If a debt buyer agrees to accept less than what I owe as payment in full, how bad will a “settled for less” mark on my credit report hurt my credit if I cannot pay my debt in full?

If a debt buyer has your account, your original lender is likely already reporting late pays and the fact your account was charged off. Your goal at this point may be getting any collection balance to report a zero balance owed in order to qualify for a new home loan, or to get an existing loan refinanced. A “settled for less” mark on your credit report from a debt buyer doesn’t have a more negative impact on your credit score, however a “zero-balance owed” could be required by the lender in order for your loan to be approved.

10. Can I settle with a debt collector for less and get them to agree to report that I paid in full?

It rarely serves much purpose to haggle with a debt collector over whether an old collection account will be updated as “paid in full,” or “settled for less.” Here again, the fact that you are in collections generally means your debt went unpaid long enough to have caused irreversible damage to your credit report. Resolving debts in the most affordable way, and taking a patient and deliberate approach to rebuilding your credit again, is often the most realistic approach to take. Getting collection accounts updated as paid in full, even if you paid less, may have some extremely limited benefit to a manual underwriter for a specific loan product. But manual credit underwriting can often mean you have the opportunity to submit a letter outlining special circumstances. Otherwise, for better or worse, credit markets are overly automated with risk-based pricing that relies heavily on your credit scores.

All of my answers to the above common questions assume that you are dealing with debts you recognize as your own. However, there are several scenarios in which you have a legal right to dispute items on your credit reports, including debts that are not yours, or that are incorrect.

Debt happens. But everyone can bounce back from credit problems over time.

Image: Wavebreak Media

Sign up for our weekly newsletter.

Sign up for our Credit Report Card and receive the latest tips & advice from our team of 50+ credit and money experts as well as a FREE Credit Score and action plan. Sign up now.

Michael Bovee has been assisting people with debt and credit concerns since 1994. He's a founder of Consumer Recovery Network, a free self-help online guide for people who are seeking debt and credit education and active discussions where people help people resolve personal financial setbacks. More by Michael Bovee

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

I have been sued by a debt collector for $1515.04 they did not ask for any interest or attorney fees I did file an answer I received a letter from their lawyer saying that I know owe $1799.04 and a special settlement offer of $935.50. Can they say I owe more then what they sued me for?

http://www.credit.com/ Credit.com Credit Experts

Collectors are able to add interest and collection fees but they must be reasonable and there are limits. How much they can charge will vary by individual state laws.

Mark Cappel

The information is No. 4 is incomplete. Under the FCRA, judgments can appear on a consumer’s credit report for 7 years or the debtor’s state statute of limitations on judgments, whichever is longer.

The information in No. 5 is partially incorrect. The start date for the FCRA 7-year rule is the date of first delinquency, and not the date of charge off. Review the FCRA and the FTC staff attorneys advisory opinions on this matter for clarification.

The information in No. 7 is incorrect. Under the FDCPA, collection agents may not add interest, fees, or charges to an account they buy, unless the original contract the consumer signed allowed for such fees. They rarely do, and the contracts are usually not available. As a consequence, a consumer can assume fees a collection agent adds are bogus and a violation of the FDCPA.

http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

Thanks for posting your feedback Mark. I am not certain why you comment so definitively above about the 7 year credit reporting limitations, but cover the 7.5 year element people should be prepared for in articles you have written.

I do appreciate the reference to judgments and credit reporting limitations. I did take care to preface the 7 year timeline as “typical”, because it is. Oddly enough, that is similar to how you typify this concern in articles you have written.

I am somewhat dismayed by your feedback about added fees. I did indeed take care to point out that these fees must be consistent with a consumers agreements. You have identified something as incorrect and offered your reasoning as the very thing I point to in the article. I can certainly agree that there are broad concerns about bogus fees and interest being tacked on to collection accounts that are either not legitimate, or that have been difficult for collectors to legitimize. But that is not always the case, and will increasingly become less the concern it has been in the past. There is a healthy amount of attention being given to the collection industry by people who care a great deal about accuracy and fairness to consumers.

OCC testimony to congress a couple of months ago identified several areas of potential guidance and policy changes that will address how fees and interest are able to be documented by third party collectors working for creditors, and data accuracy and availability backing up balances lenders sell to debt buyers.

The CFPB and FTC held a coordinated workshop with collection industry participants, consumer advocates, members of the judiciary etc., this past June. I expect much more effective supervision and regulatory guidance to come from that in the months to come.

California passed the Fair Debt Buyers Practices Act that will take effect in January 2014. The act will require collectors to have their ducks in a row with the ability to document itemized accounting of fees and interest.

There is an all to evident sea change occurring in the collection space. Suggesting people assume all collection fees are bogus and violations of fair debt laws is certainly a popular position held by many, including me on a backward looking basis. But not so much on a forward looking one.

David

We had gotten behind in both our American Express accounts. I was able to negotiate mine with the lawfirm. My wife’s is at the credit collection stage. She brought her account current and set up auto pay as I did. When she talked to the credit collector ( United Recovery i believe) she told him the account was current and auto pay was being set up. He told her AE will accept anything but the account was still in default and was trying to make a deal to settle the debt. She said she would need stuff in writing but he refused. Thing is AE let her get her account current and set up auto pay through their website and it is showing everything is current. Do we still have to deal with this credit collector?

http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

There are instances where catching up payments with AMEX, after default or charges off, still leaves your account with the third party debt collector.

Are you open to settling the debt? If so, what figures were discussed with URS (if any)? Is that something you can pull together?

David

We can’t do any lump sum deal. I have no money sitting anywhere it has to be monthly installments. He did offer my wife some discounted deal with lower interest but would not send anything in writing so my wife refused. My question is if we are current and have auto pay set up can they still pursue any legal action if we ignore them? Why would I cut a deal with them if I am current and paying monthly agreed installments to AMEX? Do they get some kind of commission?

http://consumerrecoverynetwork.com/ask-a-question/ Michael Bovee

They may be getting a portion of what you pay, even if you pay it to AMEX directly. It would depend on the contract they have.

It would be highly unlikely for URS to sue for collection. They are a typical contingency debt collector.

For later readers, there are other debt collectors AMEX works with where being sued in these circumstance could be a legitimate concern.

If it were me, cutting a deal with them would be motivated by saving money.

http://www.Credit.com/ Gerri Detweiler

You can try. If you do strike a deal be sure to get it in writing before you pay.

http://batman-news.com Nyjae

Thank you for your response

http://www.Credit.com/ Gerri Detweiler

Our pleasure. Let us know what happens.

Mike

What is the least monthly payment I can make to a collection agency

http://www.Credit.com/ Gerri Detweiler

There’s no set amount–it depends on what you can negotiate. But be careful. Making very small payments to a collection agency can be counterproductive. You may extend the statute of limitations without making a dent in the balance.

Roddy

I reached a settlement with a debt collector for an amount less than what what they were seeking. They agreed to the settlement and agreed to accept a lump sum payment in full for the debt. However they continue to show on my credit report that I owe a balance. I would like my credit file updated to reflect account as paid. They agreed in writing to accept settlement as paid. Can the creditor still refuse to update credit report and continue to show I owe a balance?

http://www.Credit.com/ Gerri Detweiler

Which shows up with a balance? The original creditor or the collection account? Either way I suggest you dispute it, however, there are some creditors that take the position that they will report the charged-off amount until the 7 year time period ends. But if you dispute it with the credit reporting agencies and show them the settlement agreement you should be able to get your reports updated.

We asked a consumer attorney about your situation: If you settled, you wouldn’t be responsible for the remainder, and an attempt to collect a debt you do not owe may be a violation of the Fair Debt Collection Practices Act.

The offers that appear on Credit.com’s website are from companies from which Credit.com receives compensation. This compensation may influence the selection, appearance, and order of appearance of the offers listed on the website. However, this compensation also facilitates the provision by Credit.com of certain services to you at no charge. The website does not include all financial services companies or all of their available product and service offerings.

Editorial content is not provided by any issuer. Any opinions, analyses, reviews, or recommendations expressed here are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any issuer.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.